Hotel Investors Tired of Waiting for Distress, Move to Well-Performing Assets

The sharp rise in borrowing costs, however, has challenged deal-making.

Capital that has been building up is set to re-enter the market hotel market, according to a new report from Marcus & Millichap.

External forces clouded the picture in recent years, the firm said, but now investors and lenders are forming a clearer and more accurate view of the hotel landscape.

The steep discounts on distressed assets “has not materialized on a large scale,” according to Marcus & Millichap, “and is unlikely to in 2024. It said focus this year is likely to shift to well-performing assets.

“Greater financial markets consistency, the potential for interest rate cuts, and increased confidence in a soft landing should help alleviate hotel investment headwinds,” according to the firm.

Then, there’s the case of the bidding for Ritz-Carlton New York Central Park.

The sharp rise in borrowing costs, however, has challenged deal-making.

While underwriting remains conservative, many financiers are prioritizing existing relationships or stabilized assets, the report indicated. Debt funds, life insurance companies, banks, and CMBS are all active.

Operators lately have been able to address the persistent labor shortage – a welcome trend.

Given that the number of unfilled accommodation and food services positions is retreating, sector wage growth has moderated after many companies faced a lack of workers and rising wages in recent years, according to the report.

Occupancy surged in 2021-2022 as the sector edged closer to a full recovery but has since moderated.

Marcus & Millichap said strong demand will allow occupancy growth to surpass last year’s gain. It also expects daily rates to be more stable.

“The combination of sustained occupancy and ADR enhancement drives RevPAR up by a pace that exceeds the long-term annual average,” the firm said.

Full-service hotels should maintain a strong occupancy rebound amid normalizing group, business, and international travel, and small to midsize regional events “are returning in force.”